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RealNetworks has filed a lawsuit against Microsoft, alleging the software giant has illegally used its power as a monopoly to control the digital media market.

The lawsuit, filed in federal court in San Jose, California, claims Microsoft forced PC manufacturers to include Microsoft's media player while at the same time restricting how competing players may be installed, RealNetworks says in a statement released on Thursday.

Tactics Criticized

"We're accusing Microsoft of engaging in a broad range of predatory practices to protect their operating system monopoly and to try to create a new monopoly in the digital media space," says David Stewart, deputy general counsel for RealNetworks.

RealNetworks accuses Microsoft of unlawful tactics including product bundling, restrictive licensing, exclusive dealing, predatory pricing, refusing to sell unbundled operating systems and discriminatory disclosure and withholding of information needed to interoperate with the Windows operating system, according to a copy of the complaint.

The lawsuit seeks to recover damages lost because of "Microsoft's illegal conduct," according to statement attributed to Rob Glaser, RealNetworks' chair and CEO. He is a former Microsoft official who left to found RealNetworks 13 years ago, and has criticized Microsoft's practices in the past.

These damages could exceed $1 billion, the statement says.

"We're trying to stop Microsoft's conduct in the digital media space and we're seeking good compensation for the harm Microsoft has caused us," attorney Stewart says.

Violations Alleged

The November 2002 antitrust settlement between Microsoft and the Justice Department is flawed, Stewart says. The deal orders Microsoft not to retaliate against PC makers who offer competing software products, such as RealNetworks' media player, with the PCs they sell.

"We cooperated extensively with the DOJ in the antitrust case, but it has become clear that government action wasn't enough," Stewart says. "The settlement is full of loopholes and Microsoft is using them all. Microsoft is still restricting how PC makers install media players on PCs and forcing PC makers to install Windows Media Player."

In 1997, Microsoft had virtually no presence in the digital media space, but by 2002, Microsoft's "anticompetitive conduct" enabled it to surpass RealNetworks' market share for media players and usage in the U.S., RealNetworks says in its complaint.

Microsoft issued a statement calling RealNetworks' action "rear-view mirror litigation." There is "vibrant competition" in the digital media market, the vendor says. Computer makers are free to install and promote the media player of their choice on new PCs and consumers are free to select which player they want to use, according to Microsoft's statement.

"This is a case where a leading firm is seeking to use the antitrust laws to protect and increase its market share and to limit the competition it must face in the market," says Jim Desler, a Microsoft spokesperson. "These issues are a rehash of the same issues that have already been the subject of extensive litigation and a tough but fair resolution of the government antitrust suit."

Analysts Review the Case

One analyst disagreed.

RealNetworks has a case, says Richard Doherty, director of research at Envisioneering Group in Seaford, New York. He believes other providers of media players, such as Apple Computer, will join in the lawsuit.

"It is not a level playing field for media players," Doherty says. "Microsoft's own team is getting access to nuances, features, or pitfalls of the operating system that are not being shared with third parties, which was the spirit of the settlement."

Michael Gartenberg, a research director at Jupiter Research, says the case is not about technology or adoption of media players, but about business practices.

"Both Microsoft's and RealNetworks' formats are very widely supported today; the question is about what the implications are of the fact that Windows Media Player is bundled with Windows and what Microsoft business practices prevent RealNetworks player adoption by PC vendors," he says.

RealNetworks has retained three law firms to represent it in the lawsuit: Bartlit Beck Herman Palenchar & Scott, the Summit Law Group, and McManis Faulkner & Morgan.

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